Wednesday, November 30, 2011

Lost in the happiness over the dollar swaps today was the news after the Chinese market close yesterday that the country's central bank was moving to its first easing stance in 3 years. A small step but considering the country is still dealing with inflation, especially of the food kind, it's an interesting change of heart. With China being the primary driver of the global bounce in economic activity in 2009-2010, it will be interesting to see how it plays out this time around as many of the loans the Chinese authorized in that era are going bad. Will they be willing to repeat their old actions if there is a wider global recession in 2012? Anyhow a question for another day - for now the official Chinese Purchasing Managers index confirms what we saw last Tuesday with the flash report from HSBC - the first contraction in 32 months. It's not affecting the Chinese market today since Asian markets were closed before the 8 AM EST coordinated dollar swap plan was announced, hence the region has to 'catch up', but this push-pull is something we want to watch very close over the next 6-12 months.

China's manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed. The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said in a statement today. The median estimate in a Bloomberg News survey of 18 economists was 49.8. A level above 50 indicates expansion.

The central bank last night announced the first cut in banks’ reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europe’s sovereign-debt crisis. The move will add about 370 billion yuan ($58 billion) to the financial system and more reductions may follow as the government seeks to support growth, Citigroup Inc. said.

Today’s report “clearly adds to the urgency for easing,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The PMI is showing weakness across the board and this would seem to be the reason the government cut banks’ reserve requirements. If this trend continues we should see another cut pretty soon.”

The Shanghai Composite Index fell 3.3 percent yesterday, the biggest decline in almost four months.

The manufacturing index compiled by the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers in more than 820 companies in 20 industries.

A gauge of new orders contracted for the first time since January 2009 and the output index expanded at the slowest pace since the same month, today’s survey showed. New export orders fell below 50 for a second straight month.

“China’s growth will slow further over the next six months,” Li Wei, a Shanghai-based economist with Standard Chartered Plc said before the data. “If the deterioration in Europe and the U.S. accelerates in the first half of next year, the government will have to put maintaining growth as its top priority.”

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